McDonald Hopkins Law Firm Alert: Reaching the Last Resort: The Municipal Bankruptcy Option

CLEVELAND, Feb. 22, 2011 /PRNewswire/ -- With tax revenues continuing to fall and federal stimulus dollars disappearing, municipalities, public school districts and other local governmental units are struggling to balance their books and maintain service levels. Many are burdened with expensive labor costs as well as legacy costs associated with retiree pension and health care costs, all of which can, in some circumstances, represent the majority of a municipality's operating budget. Faced with a choice between foregoing debt payments or cutting services, many are opting for the former. In doing so, they are raising the likelihood that a bankruptcy filing -- once viewed as an option of last resort -- may become their only option.

The following alert addresses several questions, such as:

What a bankruptcy filing means

How a governmental entity prepares for a filing

How to use the process to its full advantage

Who is eligible to file chapter 9?

The protections of chapter 9 bankruptcy are available only to a municipality, which is defined as a political subdivision, public agency or instrumentality of the state, including public school districts, water districts, sewer districts, or other special purpose districts. Additionally, to qualify to file chapter 9 bankruptcy, several prerequisites apply: the state, or a governmental entity empowered by state law, must authorize the municipality to file; the municipality must be insolvent; and the goal of the municipality must be to affect a plan to adjust its debts (with certain conditions applying thereto).

McDonald Hopkins is a business advisory and advocacy law firm with offices in Chicago, Cleveland, Columbus, Detroit, and West Palm Beach. The firm's comprehensive legal services are provided by teams of specialized attorneys and professionals in areas such as business law, litigation, business restructuring and bankruptcy, estate planning, government affairs, healthcare, intellectual property, labor and employment, and mergers and acquisitions. The president of McDonald Hopkins is Carl J. Grassi. For more information about McDonald Hopkins, visit www.mcdonaldhopkins.com.

Available Topic Expert(s): For information on the listed expert(s), click appropriate link.